Tinexta — Boosting presence in high-growth Cyber Security

Tinexta (MIL: TNXT)

Last close As at 28/02/2024

EUR18.74

−0.71 (−3.65%)

Market capitalisation

EUR885m

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Research: TMT

Tinexta — Boosting presence in high-growth Cyber Security

Tinexta’s binding agreement to acquire an initial 20% stake in Defence Tech Holding (DTH) will provide a significant presence in a new client vertical (government/defence) for its Cyber Security business unit. DTH’s major assets include proprietary technology in an industry with a high security requirement, and ownership of authorisation centres to uphold Italy’s national security protocol, implying strong barriers to entry.

Russell Pointon

Written by

Russell Pointon

Director, Consumer

TMT

Tinexta

Boosting presence in high-growth Cyber Security

Acquisition of stake in Defence Tech Holding

Professional services

5 January 2023

Price

€22.98

Market cap

€1,085m

Net debt (€m) at 30 September 2022

139.1

Shares in issue

47.2m

Free float

34%

Code

TNXT

Primary exchange

Euronext STAR Milan

Secondary exchange

N/A

Share price performance

Business description

Tinexta has three divisions: Digital Trust, solutions to increase trust in digital transactions; Innovation & Marketing Services, services to help clients develop their businesses; and Cyber Security, services to help digital transformation.

Analysts

Russell Pointon

+44 (0)20 3077 5700

Max Hayes

+44 (0)20 3077 5700

Tinexta is a research client of Edison Investment Research Limited

Tinexta’s binding agreement to acquire an initial 20% stake in Defence Tech Holding (DTH) will provide a significant presence in a new client vertical (government/defence) for its Cyber Security business unit. DTH’s major assets include proprietary technology in an industry with a high security requirement, and ownership of authorisation centres to uphold Italy’s national security protocol, implying strong barriers to entry.

Year end

Revenue
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/20

269.0

58.4

0.85

0.26

27.1

1.1

12/21

301.5**

70.4

1.02

0.30

22.5

1.3

12/22e

365.3

67.4

0.88

0.29

26.1

1.3

12/23e

408.2

83.7

1.09

0.29

21.1

1.2

12/24e

455.8

98.9

1.31

0.36

17.5

1.6

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pro forma for disposal of Credit Information & Management.

Tinexta has announced a binding agreement to acquire an initial 20% stake in DTH for c €25m (€4.9/share) in cash with expected completion in H123. Tinexta has the option to increase its stake by a further c 40% in FY24 at an agreed 12x FY23 adjusted EBITDA plus pro forma net debt, which would force a public takeover bid and lead to its stake increasing to 85% if successful (with a 15% minority held by management) and subsequent delisting of DTH’s shares, or exiting the investment. The transaction is notable as it is Tinexta’s first acquisition of a stake in a listed company. DTH was founded in 2010 and listed in October 2021.

DTH has three key operating companies with different expertise: Donexit (technologies and products to protect critical national infrastructure), Foramil (security infrastructure for the military and civil sectors) and Next (systems design and development for defence and space segments) with a domestic focus. The group’s main exposure is to government spending (79% of revenue in FY21).

DTH reports using Italian accounting standards and therefore its financial statements may not be directly comparable to Tinexta’s. Consensus (source: Refinitiv) currently estimates that DTH has a revenue CAGR of 20% in FY21–24 (€19m in FY21 to €33m in FY24) and an EBITDA CAGR of 25% (€6.7m in FY21 to €13m in FY24). The growth rate is similar to Tinexta’s guidance for its existing Cyber Security division (19% in FY2124 from €73m in FY21). DTH’s estimated FY24 EBITDA margin (c 39%) is significantly higher than Cyber Security’s (we forecast c 19%) given DTH’s greater exposure to higher-margin ‘products’ than ‘services’. Tinexta’s management is confident that revenue synergies will enhance expected growth rates for both entities. DTH’s adjusted EBITDA margin improved significantly from 20.5% in FY20 to 37.0% in H122 as product revenue grew. Note that for our EBITDA margin calculation we use ‘revenue from sales and services’ and ‘other revenues and income’ as disclosed by DTH as the denominator (which is consistent with Refinitiv consensus) rather than value of production, as disclosed by the company, which includes changes in, eg working capital items. Following positive free cash generation of €0.5m in FY20, DTH generated negative free cash flow of €7m in the 18 months through H122 due to investment to support growth.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

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United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Tinexta and prepared and issued by Edison, in consideration of a fee payable by Tinexta. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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